National Bank of Canada is assessing investors’ appetite for a significant risk transfer deal, adding its name to a growing list of lenders exploring the instruments as a way to create room on their balance sheets.

The Montreal-based lender is considering an SRT tied to a portfolio of project financings, according to people familiar with the matter. The potential deal is still in its early stages, the people said, speaking on condition they not be identified in order to discuss private deliberations.

A representative for National Bank declined to comment.

Banks use SRTs as a way to insure loans against default, typically obtaining protection for between five per cent and 15 per cent of the portfolio value, in order to free up capital for new business. Transferring risk this way increases their ability to original new loans, make acquisitions or increase shareholder payouts. The firms assuming the risk stand to reap coupon payments that can exceed 10 per cent.

Rivals Toronto-Dominion Bank and Royal Bank of Canada have discussed similar deals with investors this year.

Global sales of SRTs are on track to achieve a record-breaking US$45 billion this year, up from US$41 billion in 2025, according to estimates by Crescent Capital, a unit of Sun Life Financial Inc .’s asset management division. Sales of SRTs in the first half of the year surpassed US$18 billion.

Loans to large companies and to small- and mid-sized enterprises continue to be the most popular types of collateral tied to SRTs, representing 59 per cent and 15 per cent of volumes, respectively, Crescent Capital said. Banks are also adding other types of assets, such as project financings.

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Spain’s BBVA SA recently completed an SRT tied to a portfolio of €2 billion (US$2.3 billion) of project financings, including some loans for digital infrastructure. In Germany, Deutsche Kreditbank AG, one of the country’s largest lenders to sustainability projects, has been working with Deutsche Bank AG on an SRT related to a portfolio of renewable power loans.

Bloomberg.com